The Myth of the Stagnant Middle Class

February 1, 2013

A common gripe from progressives is that America's middle class has not benefited from the overall economic growth that has occurred since the 1970s. From this perspective, middle class America experienced flat wages and declining buying power. However, this is wrong, say Donald Boudreax, a professor of economics at George Mason University, and Mark Perry, a professor of economics at the University of Michigan-Flint.

The average hourly wage of nonsupervisory workers when adjusted for inflation using the Consumer Price Index (CPI) has remained roughly the same since the Bureau of Labor Statistics (BLS) started keeping track in 1964.

Boudreax and Perry note that the CPI overestimates inflation because it overestimates the value of increases in product quality and variety, and fails to account for the rise in nontaxable fringe benefits like pensions and paid leave, which the BLS said accounts for 31 percent of total compensation.

The CPI also fails to account for the influx of women and immigrants who have entered the workforce in the last three decades. Many of these new lower skilled workers found employment that pays a lower hourly wage, keeping the total average hourly wage stagnant.

While the average did not rise because of the influx in lower paid workers, many employees during the last 30 years have experienced a rise in their real wages as they have gained more experience and skills. Opponents of this view fail to account for these factors that indicate the inflation-adjusted CPI does not accurately predict the change in real wages. Indeed, middle class living standards have risen during this period.

Life expectancy is a full five years higher today than in 1980 and the racial gap in life expectancy is now at its lowest point ever.

Americans are also able to purchase more luxuries, as basic household spending has fallen from 44 percent of disposable income to 32 percent today.

Life's "basics" have also gotten significantly more affordable. Middle class Americans can now easily afford air travel, which was once a luxury of the rich, just as they can now afford electronic gadgets like iPhones, iPads and the like.

Boudreax and Perry say that the average American would not find it prudent to trade his 2013 wages and benefits and affordable goods, housing and electronics for the wages, products and higher prices of the 1970s.